Interview with Dr. José Ugaz, President of Transparency International — Part 1

Peruvian lawyer José Ugaz was the first anti-corruption prosecutor in Peru. He participated in the trials against former President Alberto Fujimori and former advisor Vladimiro Montesinos, who in the decade of 2000 were convicted for leading a corruption network within the government. Since Oct. 2014 Ugaz is President of Transparency International, an organization that seeks to combat corruption worldwide.

In the following interview with Stefan Paul Sprinckmöller Alayza, a Latinamerica Press collaborator, Ugaz made an balance on the fight against corruption in Peru and Latin America. In this first part of the interview, Ugaz refers to the economic, social and political effects of corruption.How do you define corruption?The classic definition provided by Transparency International (TI), is the abuse of public office for private interest, for personal gain. There are many ways to define corruption. In general, it is to illegally favor the individual interest, either a public or private official, to make a profit against the common good. I think this somehow comprises all the various definitions.

Today, at TI, we are working on another definition, not of corruption, but of “Grand Corruption”, and we are engaged in an effort in which the three elements that are clearly seen are: power, the authors of grand corruption have economic or political power, they mobilize large resources, and have an impact on human rights.

The governments in many countries in the region are currently facing serious allegations and cases of high corruption. Are there common features in their operating mechanisms and the areas they operate in different countries? Corruption is a global phenomenon. It is a problem affecting the world at large, but Latin America and the Caribbean in particular have a low ranking in the assessment that TI has been doing for many years through the Corruption Perceptions Index. We have a good portion of the countries that are below average, in terms of perceived corruption.

And this varies somewhat from country to country, there are no recipes, nor simple explanations, but in general, I think that corruption in our region has to do somehow with some historical background, which has had varying consequences.

On the Peruvian case, for example, there’s a historian, Alfonso Quiroz, who has written a book called Circles of Corruption in which he stated that the colonizer pattern had much to do with the formation of a structurally corrupt system. Those who came here, as colonizers and viceroys, weren’t the best officials of the Spanish Kingdom, but rather those who could pay for their post. And obviously, the one who could buy a position to come to rule the colony didn’t do so for altruism, but for business. They handed over money there and came here to plunder the states and develop a clientelist system, which I think has been the basis of this problem.

A number of other factors, which apply to the rest of the world, have been added since. Some have to do with inadequate regulation, lack of adequate infrastructure and public services, lack of a meritocratic public career, administrative simplification, the discretionary system for civil servants, among others. All this has generated a mixture, and I think it has caused the levels of corruption we have. Corruption patterns are similar everywhere. Certainly each country has some peculiarities, but in general, the pattern is basically the same.

The most sensitive subjects regarding corruption have to do with infrastructure management; construction, for example, is a very vulnerable sector. Everything related with public services and bribes that must be paid for state services, from an inefficient bureaucracy with poorly paid staff. Obtaining services from the government has consistently become a source of corruption.

In recent times, extractive industries have also become a permanent source of corruption. What is happening with Petrobras, in Brazil, is a clear example of that because the extractive industries move a lot of money and provide opportunities, if there is no information available, no transparency and clear rules, corrupt officials can take advantage of that. I would say that, in general, the patterns are very similar throughout the region.

If one looks at the map of corruption from the Corruption Perceptions Index, there only two countries in the region that have good grades, passing grades, are Chile and Uruguay. But that has also its drawbacks, because everyone knows, for example, that there is money laundering in Uruguay, is a “tax haven” and there are a number of legal loopholes that allow banks to become a system for hiding corruption money. And in Chile there have recently been some corruption cases involving the son of the president [Michelle Bachelet], corruption cases that were unprecedented. Although it may be true that these two countries have better performance in terms of integrity, either they are not free from corruption.

The problem I see now in the region is the merging of corruption and organized crime. This is creating a different phenomenon that we in TI call Grand Corruption, because the parties have power, could be economic or political, they wield large amounts of resources and have a large impact on the basic rights of people. If we look at what happens in the Northern Triangle of Central America: Guatemala, Honduras, El Salvador, what happens in México, or what is happening in Peru and Colombia, it is clear that the emergence of drug trafficking has warped the situation and has provided boundless opportunities for corruption and illegal transfer of funds from one place to another.

You have worked in important corruption cases in the 90’s, how has this phenomenon evolved over the last 15 years? It is possible to say that it has now reached a more extensive and visible levels? If so, why?I think there are two main elements. First, up until 1990, when Fujimori took office, Peru was a country with a widespread administrative corruption characteristic of Latin American countries. It wasn’t anything special. There was much corruption, but it was basically administrative at some levels.

When Fujimori arrived with Montesinos, a qualitative change occurred, because for the first time, we had a criminal network that took the power. What happened in this case is that no longer there were one or several corrupt officials in the public administration, but a criminal organization that took control of the Peruvian state. The State was captured by a criminal network. This is clearly seen in the organization chart we prepared several years ago when we started the research on the situation of the Peruvian state. There wasn’t a single public branch that was not controlled by Fujimori and Montesinos. The judiciary, the electoral branch, the Congress, the Attorney General, the Armed Forces, all the Peruvian government and many private sectors had also fallen under their control. The media and other sectors were also included in their domain.

I think that set a milestone in the history of the country, and I would say in the region, probably. Peru is emblematic of a State captured by a criminal organization, and after that organization was dismantled by the anti-corruption processes, we are left now in a different situation. Peru has today a different political organization. Peru went through a process of regionalization, and it was obvious that, by decentralizing the power from Lima and placing it in the regions, it would also decentralize corruption. Unfortunately, despite warnings from Proética, the Peruvian TI chapter, checks and balances weren’t established to prevent that the decentralization of power ended spreading corruption at the national level, which is what ultimately happened.

As we have seen in the last election [of 2014], many of the regional and municipal authorities are linked to corruption. They have a background. Instead of a political career, they have a criminal record. That has greatly complicated the situation because there is a lot of noise regarding corruption at the national level, and regions that did not have financial resources before, now receive money from royalties of extractive industries or other sources, and that money is being diverted into the pockets of these corrupt officials.

Is there any correlation — either based on studies or evidence — between governance types in a country and corruption? For example, in a government considered “democratic” and another deemed “dictatorial”, or between a left-leaning and a right-leaning one? It’s a very complicated question. In all its aspects, this has been widely discussed in the anti-corruption world, in academic circles. The scientific evidence is, theoretically speaking, that a true democracy should provide mechanisms to allow transparency and access to information that would otherwise be unavailable under an authoritarian regime or a dictatorship. Thus, if we have a true democracy, I mean transparency mechanisms, access to information, that the public opinion can be aware and can monitor the processes of decision making and resource allocation, it is obvious that corruption is lower, or should be lower.

Robert Klitgaard, a former professor at Harvard University, coined a formula which states that corruption equals monopoly plus a discretionary system for civil servants minus accountability. When we say monopoly, we are talking about darkness, opacity, no transparency, no access to information. I think that formula is correct. However, many of our “democracies” are imperfect democracies. And although the rules and change of power every five, four or six years, depending on the country, are respected, the mechanisms that a democracy should guarantee for transparency and access to information don’t exist.

Therefore, if we look at our governments in this region, we see that they are formal democracies but there is a lot of corruption. And that corruption has to do somehow with the fact that there is a concentration of information that is not accessible to the public, there’s opaqueness, there’s darkness, there’s no transparency. So for practical purposes, I would say that today, in our scenario, an authoritarian and a democratic government are comparable, to the extent that neither guarantee access to information nor transparency in the decision making process, which is what would allow the citizens to monitor how the authorities are behaving.

There are examples all over the world. Singapore has an authoritarian government, but it has minimum spaces for corruption. The historical design of the country has allowed corruption to be reduced by a very significant degree. Whereas older Latin American democracies — even Mexico, for example, with its one-party system — it has historically had corruption, and high levels of it. So I would say that in theory, a well-established democracy should create opportunities for less corruption than a dictatorship or an authoritarian government. In practice, as they are imperfect democracies, there is no major difference between the two.

In terms of ideology, the same thing happens, more or less. Totalitarian ideologies, socialists at the time, communist, spoke of the dictatorship of the proletariat, tight-knit regimes with concentrated authorities so that the principle of monopoly reemerges and, in theory, these regimes should have high levels of corruption. If we look at what is happening in Venezuela and its relationship with drug trafficking for example, there is not a lot of information available but it is known that there are high levels of corruption. However, in Cuba, for example, there is not much information about its corruption levels, and that’s part of the problems with authoritarian regimes, there is no access to data in order to assess how they are behaving.

And finally, in terms of political parties at the Peruvian front and I think that it is a constant in Latin America as well: it is not the problem of a corrupt party or two or three corrupt parties, it is a problem of the political class. We have a political class strongly tainted by corruption, and the involvement ranges all the way from how to choose the candidates and who wants to come to power. It is clear that, as in colonial times, the candidate who buys his candidacy, make an investment of US$60,000, $80,000, $100,000, $300,000, and once he/she obtains power, either in Congress or the Executive, what he/she will try to do is to win back that money.

So I think that our political class is one that does not represent the interests of the common good, but instead it opens the opportunity for a number of crooks and opportunists who want to gain power in order to plunder the state.

Peru, for example, is waiting on a historically profound political reform. That has to do with the structure of political parties, and with what are the rules of the game. For example, political parties, according to the electoral law, should submit financial reports, which state where the funds are coming from, they should be held accountable, and none have done so. In 2014, just one party out of 250 [regional and municipal political organizations] has presented its financial report. Clearly there is a historical debt and deep political reforms that recent and previous governments have carried out. There is a pending task waiting to be carried out.

What is the relationship of the private sector with corruption? Well, the role of the private sector has unfortunately been one of complicity in some cases and in others that of resignation. Many in the private sector have chosen to give in to extortion, blackmail. They have assumed that it is easier to make payments under the table than to try to be competitive in a market. Many times when they had the economic power, including the political power, to change things, they have preferred to adapt to the corruption schemes, incorporate them into their cost structures, without being aware that there is a problem not only with the payment but also with the impact of governance and democracy at large. A country that is weakened by corruption does not have strong institutions, cannot develop adequate competition and then sets different levels for all players coming to the market and should have found a flat floor and equal for all.

Theorists say there is what is called a spiral and rip current effect. Spiral because it is a movement that increases, to the extent that as more corrupt practices occur, they push other economic actors to do the same, because if I go to the market, and I am not corrupt, but my competitor is: he does not pay taxes, gives bribes, etc. he will have a number of advantages when it comes to making his bids that I do not have. So that is pushing other actors to join in corrupt practices and therefore is a spiral that goes upward but also pushes other actors like domino rip current.

I think now the private sector is beginning to rethink its relationship with corruption, and I think that is because they are feeling threatened by public safety problems. And public safety, largely in Peru, has to do with corruption. It seems that at least a forward-looking sector of business people is beginning to realize the need to change things and that instead of being complicit in these corrupt practices, we must limit it if we really want the country to be stronger and to have sustained economic growth.

Corruption has an economic cost to countries. Are there any estimates of this cost? In addition to the economic costs, can we talk about a political cost and social cost to corruption?There is no doubt that corruption has an economic cost, and there are indicators. Let’s get back to the Brazil case. Petrobras, following the corruption scandal, between 2014 and 2015 has had 89.7 percent less revenue [decrease in net profit in the second quarter of 2015 compared to the same period last year]. Which shows that the economic impact that corruption has on the reputation of the company and its value in the stock market has collapsed, and that is a result of the corruption scandal. It is a gigantic company that significantly contributes to Brazil’s budget. If Petrobras falls, there will be an economic crisis that will affect governance, which has already been affected. President [Dilma Rousseff] currently has less than 10 percent approval ratings, there are demonstrations in the street, and we do not know if this government will last or will fall. All this is a result of corruption.

Corruption kills. It isn’t only a numbers problem. People die. In Guatemala 36 people died because someone stole the money for the medicines these people needed. In Sierra Leone, the funds that were set to fight Ebola were stolen, and that obviously has an impact on deaths. In Bangladesh, a building fell and hundreds of people died because someone stole the money that should have been used to make a secure building.

So, there is no doubt that corruption kills, corruption affects people’s health, increases poverty, denies education to children. It is a social problem, and therefore, the penalty must be proportional to the social damage this behavior creates, which in my opinion is very great.

Corruption has clear and measurable economic effects, but it has immaterial effects that are sometimes more serious than the economic effects, which are: lack of governance, attack on democracy, increased poverty, and, I would also add, the impediment to development. — Latinamerica Press.